Lots of mail and comments landed in my inbox over the past week after InvestorPlace Editor Jeff Reeves and I published our “investment horizon retirement” article. The majority of the feedback was quite positive, so thanks for that.
However, a number of readers suggested that for many folks, the reality was a little bit different: an investment figure of perhaps $250,000 and above was more representative, with a similar horizon to retirement age.
The jibes well with recent statistics from the Federal Reserve Survey of Consumer Finances, which showed a median net worth of $229,300 for households headed by people in their 50s.
The immediate response to this situation is that perhaps a few extra years of working is in the cards. If you’re happy in your position, that shouldn’t be a problem. In many cases, it’s even a bit of a blessing because the longer you can stay in the workforce, the longer you can put off retirement. That gives your portfolio (and perhaps Social Security) a greater chance to grow.
In the meantime, smaller portfolios need not be a reason to avoid the market. Wise investments combined with prudent decisions can still provide you with the ability to weather the inevitable storms.
According to one Rockville, Md.-based investment adviser, the key is to pay yourself first, and adjust your spending to what you have remaining. Sound advice, indeed. So, let’s try to look at each side of that equation with some suggestions.
First, pay yourself. Even small investors can start out by simplifying stock investment decisions: smaller investments in lower-cost dividend stocks can still pay off handsomely. Names like Coca-Cola (NYSE:KO), Intel (NASDAQ:INTC), Disney (NYSE:DIS), AT&T (T) and Verizon (NYSE:VZ) are all solid dividend companies with entry prices below $50 per share.
Picking up these companies, even with 25 shares, is a worthwhile long-term investment for income. All have histories of increasing dividends. You may not be able to hit one of these out the park like if you had invested in Apple (NASDAQ:AAPL) a couple of years ago, but lower-risk plays are the name of the game at this stage.
Plenty of stocks perform very well for much less money, as we proved at InvestorPlace earlier this year. Finding them takes some time and effort, but it’s worth doing.
Next come the adjustments to determine what’s left and how to maximize that position. Consider some thoughts on lifestyle and most important of all, personal cash flow and debt issues:
1) If you have kids getting set to go to college or already there, remember that when it comes to student debt, they have a longer time period to pay off those debts than you might have. With so many parents, educators and even students trying to decide not just where to go but what the eventual payoff of that decision might be, you’re allowed to set minimum costs for your children as necessary.
There’s nothing wrong with in-state schools!
2) Your home may still be your castle, so try to keep it that way. Keeping current on your mortgage payments is still the best option for most homeowners who are gaining on retirement. A large portion of the baby-boomer generation is actually starting to downsize, particularly once their mortgages are paid off, helping soften the home-ownership debt burden. A number of people I know went to renting as a way of eliminating huge real estate tax bills, in one case saving over $14,000 per year.
Remember, too, that the days of using your home as an emergency ATM are all but over. Refinancing is still a very popular option as mortgage rates continue to hover at 3%, but don’t expect a dramatic increase in the value of your home to bail you out if you overextend on the refinancing.
Most important: Few of these options are available if you simply default and walk away.
3) Don’t get taken in by “high return, no risk” gimmicks! There are just no such things. High yields invariably involve high risks, and at this point there isn’t any compelling reason to take a chance. If it sounds too good to be true, it is. Make sure you read the fine print before you put your or your spouse’s good name to an investment. Slow and steady often wins the race.
So, thanks for the feedback and the input! We’re always aiming to help out with some meaningful advice, and keep those cards and letters coming!
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing he is long AAPL, INTC, and VZ.